British Land sees loss narrow in first quarter

British Land, the UK’s second-largest real estate investment trust, said its first-quarter loss narrowed after a fifth of its…

British Land, the UK’s second-largest real estate investment trust, said its first-quarter loss narrowed after a fifth of its properties rose in value.

The net loss for the three months ended June 30th was £273 million compared with £565 million pounds a year earlier, the London-based company said in a statement today.

British Land, owner of the Broadgate office complex in London's main financial district, said the total value of its offices and malls fell 3.7 per cent to £8.2 billion pounds.

British Land has raised more than £1 billion this year to bolster its balance sheet after UK commercial real estate companies amassed debt to buy buildings in a boom market that ended in mid-2007. Since then, the average prices of those properties have slumped 44 per cent, according to London-based Investment Property Databank.

"The pace of decline in our portfolio valuation has slowed markedly compared with the previous quarter," chief executive Officer Chris Grigg said in the statement. "Since the quarter end, the market has continued to strengthen."

British Land said that £1.7 billion, or 20 per cent, of its assets, increased in value during the first quarter, with a further £1.5 billion unchanged. Retail superstores recorded the biggest increases.

British Land climbed 41 per cent in the six months through yesterday, compared with a 45 per cent advance in the FTSE 350 Index of the 16 largest UK property companies. The company has a market value of £4.3 billion, while Land Securities Group, the biggest UK REIT, is worth £4.6 billion.

More than half of British Land's properties are retail warehouses and shopping malls, and the rest are office
buildings.

British Land's net rental income fell to £143 million from £162 million pounds a year earlier, the company said in the statement.

"The impact of the recession has caused businesses to reduce significantly their demands for additional space, thus putting downward pressure on rental values," Mr Grigg said.

The value of Broadgate, the company's biggest asset, dropped 3.9 per cent to £2.2 billion during the quarter, British Land said today.

Broadgate's 16 office buildings, stores, restaurants and ice-skating rink, which are located behind Liverpool Street station, account for about a third of British Land's rental income.

According to a Daily Telegraph report from August 15th, the company is seeking £150 million in cash from the sale of a 50 per cent stake in Broadgate. The company confirmed today it had approaches from potential buyers of its Broadgate office complex.

About £2 billion of the estate's value is in securitised debt.

Goodbody analyst Eamonn Hughes said the results add to growing signs of stabilisation in the UK commercial property market.

"The valuation of the portfolio was down 3.7 per cent in the quarter though they claim that some properties may actually have increased in value in the quarter," he said in a note this morning.

"As we highlighted in the IPD data yesterday, there is some evidence coming through their portfolio of yield hardening, though across the whole portfolio, initial yields shifted out 22bps in the quarter though the equivalent yield was flat at 7.4 per cent as rents declined. In addition, British Land also highlights the willingness of some banks now to start lending again in the commercial property space.

"While helpful in the context of stabilisation in the UK, we would highlight that we already have lower price declines built into our property loss assumptions for international assets relative to potential losses on the domestic loan books of the Irish banks."

Bloomberg